“Throughout history, it has been the inaction of those who could have acted; the indifference of those who should have known better; the silence of the voice of justice when it mattered most; that has made it possible for evil to triumph.”
Haile Selassie

Sunday, August 23, 2009

ICVA Considers Taking Out Loan, Putting Taxpayers More Deeply In Debt

The Indianapolis Business Journal Saturday reported on the latest hair-brained scheme being launched by insiders wanting to get their hands on more taxpayer money - the Indianapolis Convention and Visitors' Association is considering borrowing money for marketing. According to the IBJ:

The money would be used to add sales and marketing staff, to advertise in trade publications, and to beef up the ICVA’s presence at gatherings for trade show and convention planners. It would also enhance the ICVA’s ability to fly prospective customers here for site visits. Extra funds would also be used to market the city to leisure travelers in neighboring cities, such as Chicago, Cincinnati and Louisville.

In the article, Don Welsh, ICVA, CEO, says that the ICVA spends 85 percent of its $10.5 million budget on sales and marketing, with the rest going toward administration, finance and information technology. Welsh is playing fast and loose with the numbers. As I have previously reported:

In its 2007 tax return, the ICVA showed revenues of $12,159,994 almost all of which came from taxpayers. For an organization allegedly starved for cash, the ICVA had $1,549,267 stashed in mutual funds and equity securities. The organization paid out salaries of $4,326,029 and provided benefits worth $692,734, for a total employee expense of $5,018,763. Thus employee expenses make up an incredible 41% of its budget. And that is not counting other overhead expenses. As with numerous non-profit organizations funded by Indianapolis taxpayers, most of the tax dollars get swallowed up in overhead.

As far as individual officer salaries at ICVA, former ICVA President and CEO Robert Bedell pulled in $353,777 in salary and benefits. Reportedly, the new ICVA President/CEO Don Welsh makes substantially more. It is a safe be that his combined salary and benefits total over $400,000. According to the 2007 report, Alfred Bennett, V.P. Sales made $142,579, Matthew Carter, V.P. Strategic Development made $143,343, Mary Huggard, V.P. Communications and Development pulled in $144,637, and James E. Wallis, V.P. of Administration and Technology, made $136,858. Those are just the officers. Obviously the top employees are also pulled down substantial sums of money.

What Welsh undoubtedly is doing is moving over employee and officer salaries from "administration" to "sales and marketing." Sorry, but that is not the way it's done. Salaries and benefits are "administrative" costs. The fact than an organization is involved in "sales and marketing" does not change that fact.

The ICVA hog at the taxpayer trough is long in need of being put on a diet. Rather than ask for more money or borrow more that the taxpayers need to pay back, the ICVA might consider cutting some of the fat out of its administrative budget. A good place to start is with Welsh's lavish salary and benefits. Do we really need to pay one person nearly a half million dollars annually (Welsh's estimated salary and benefits) to run the ICVA?

7 comments:

I remember when another not for profit CEO was lambasted in the media for making 400k per year and that disclosure made national headlines. Per the ICVA site they are a private, non-profit funded from private and public sources. What percent of money is private and what percent is public? The interesting parts of the IBJ article were Cochran's statement about borrowing operating costs and the ubiquitous regional solution that he seems to be suggesting.

Almost every dime of the ICVA's money is public money. That's a stretch to say they are funded by private source. It reminds me of the father-son combination which has more hits in Major League history than any other one - Pete Rose and Pete Rose, Jr. Pete, Sr. had about 4300 hits and Pete, Jr. had about 2. That is about the ratio of public v. private financing of the ICVA.

For what it is worth I read through the bulk of the alleged CIB audit. On page 23, 64 it state that compensation to the ICVA is based on a percentage of the innkeeper's tax revenues (40%of tax max). That tax was about 23 million in 2007. Another fun fact is from 2001 to 2004 the CIB has these deficits; $15,559,474 in 2001, $10,278,007 in 2002, $7,646,378 in 2003, $13,227,497 in 2004 (pgs 72-73). Come 2005 they were $27,035,993 in the black due to an increase of about 50 million in revenue from new taxes. So why weren't they 37 million in the black? They added 13.5 million in depreciation.

"(f) The controller shall submit to the board at least annually a report of the board's accounts exhibiting the revenues, receipts, and disbursements and the sources from which the revenues and receipts were derived and the purpose and manner in which they were disbursed. The board may require that the report be prepared by an independent certified public accountant designated by the board. The state board of accounts shall audit annually the accounts, books, and records of the board and prepare a financial report and a compliance audit report. The board shall submit to the city-county legislative body financial and compliance reports of the state board of accounts. The board shall post the reports of the state board of accounts on the board's Internet web site. The city-county legislative body shall discuss the financial and compliance reports of the state board of accounts in a public hearing. The handling and expenditure of funds is subject to supervision by the state board of accounts.As added by Acts 1982, P.L.77, SEC.28. Amended by P.L.19-1987, SEC.57; P.L.46-1997, SEC.17; P.L.182-2009(ss), SEC.457." I can see in the language that they allow for an independent audit selected by the board but thye also must be audited by the SBA. Why do the taxpayers have to pay for two audit?

I look at the ICVA like a would a salesperson. The cost of the product keeps going up in a competitive market, and without better weather, casinos, oceans, mountains or something else distinctive it is difficult to sell "value" even if the venues are nice. The cost of the product must be competitive in order to offset that people, especially in the colder or rainy months, would much rather go someplace warmer and/or more entertaining.

I did wonder, during the hotel tax discussions, how much MORE could they sell if the hotel tax was reduced. This convention business stuff sounds great but lots of other cities are betting on it too. More economic adventurism (government being in the convention space business) with taxpayers as the backstop.

Other cities are going to use Indy's high hotel tax rate against it. They are going to lose business because of raising that hotel tax. Only in bizarro world would we get more of something by increasing the tax on that thing.

Iron law of economics: You subsidize A, you get more of A. You tax B, you get less of B.

In 2007, the last federal tax filing available on guidestar.org, the ICVA took in $11M from government sources vs, $0.7M in membership dues.

I thought that taking a loan to cover ongoing operations expenses was bad financial management? But, lets suppose that only applies to others, would the taxpayers be on the hook for repayment or would the ICVA use its assets for collateral?

About Me

I have been an attorney since the Fall of 1987. I have worked in every branch of government, including a stint as a Deputy Attorney General, a clerk for a judge on the Indiana Court of Appeals, and I have worked three sessions at the Indiana State Senate.
During my time as a lawyer, I have worked not only in various government positions, but also in private practice as a trial attorney handing an assortment of mostly civil cases.
I have also been politically active and run this blog in an effort to add my voice to those calling for reform.